I don't have many shares my I want opinions of why so many feel its necessary to sell KMP now and take profits rather than wait for the merger, is it because of tax issues? or KMI is going higher? thanks all.
I own 3000 KMP at zero cost basis. I need about $100,000 for taxes based on 38% ordinary income not cap gains. At todays prices of KMP and KMI I am better to take the deal, sell 1579 shares KMI plus the cash. That will give me about $99,000 for taxes vs about $88,000 if I sell 3000 KMP now and buy 5000 KMI. Now this is predicated on todays prices.
Sounds like your only considering selling enough kmi to pay for taxes. I always like to take a bit of profit anytime an investment has made a large gain. Since no matter what you do this event is causing a tax event on your entire position, you might consider redeploying some of it into something else for diversification.
I will let my shares convert and reinvest the cash in KMI. Perhaps there are profits to be had by arbitrage but every time I've meddled it has cost me money in the end.
I'll just let it ride.
To follow up my previous response...if you're confident the deal will go through and KMI will continue to appreciate, I think the best move is to sell KMP and buy KMR less whatever you need to pay the gov't. In this case you're getting about 2.5% in positive arbitrage and they will convert to KMI on the close of the deal with no additional tax burden. You'll also get a better yield at the next distribution if the deal doesn't close before distribution time.
BTW...I've got a big chunk of KMP for which I'm contemplating this same issue.
If I were to sell/buy at today's prices I would get about 238 KMI for every 100 KMP. If I wait until closing, and lets say KMI is $50 (that's about $120 for KMP) I would get 240 shares. So about $2000 more in cap gain. ($300 at 15% bracket) and get 2 fewer shares. (lose $100) so for every 100 shares you gain $200 net by selling today. Of course by waiting until the end your basis in KMI is higher so that may help down the road when you sell.
If you intend on holding on to your KMI shares. And invest the $10.77 in new KMI shares, then I think it is better to sell now and buy KMI instead. Either way you end up with about 240 KMI for every 100 KMP. If you sell today your cap gains are based on todays price of $98. If KMP would be $120 at close (and KMI would be about $50)---again you get same # of shares, but now you are paying cap gains on the sales price of $120. That's a big difference.
On the other hand if you are not planning on keeping KMI, and think the price will be going higher---then sure you will have more cap gains later, but more money to spend on other choices.